135,000 families face endowment shortfall

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by CLARE KITCHEN, Daily Mail

One of the big banks yesterday admitted that most of its endowment mortgage holders face a bill for thousands of pounds when their policies mature.

Lloyds TSB said its policies are performing so badly that half of the 270,000 it has sold are at serious risk of leaving owners in debt.

Another 124,000 are estimated to have a chance of leaving a shortfall, while only 10,800 are on track to cover the mortgage.

It is thought to be the worst example of the problems surrounding endowments, many of which were mis-sold to home-buyers by salesmen eager to bump up their salaries with commissions.

The huge numbers of Britons mis-sold endowment mortgages could cost the life assurance industry more than £1billion in compensation, the latest estimates say.

Lloyds TSB chose to reveal the scale of its problems after the Financial Services Authority stipulated that all insurance companies must let customers know the state of their policies by the end of this month.

It has shown that six million of the ten million endowments in Britain are underperforming and may not cover the cost of the loan.

Lloyds TSB blamed ‘changes in the economic environment’ but claimed that many of the policies were new and had not had time to benefit from long-term exposure to the stock market.

The scale of its problem has shocked mortgage experts. It compares with Scottish Amicable, where just under half of the policies are definitely on course.

Scottish Amicable has written to virtually all 817,000 policyholders and so far just two per cent of endowments are seriously at risk, while 49 per cent are risky and the rest are on course to cover the loan.

In contrast, all of Standard Life’s 1.6million policies are on track. The company has promised to stand by all policies and top up any shortfalls provided future investment returns are at least six per cent a year.

A spokesman for the Financial Services Authority said policyholders should not panic as many under-performing policies could improve.

‘Our advice is not to take this as a final verdict on your policy,’ he added. ‘The market goes up and down, so policies that are not doing so well can improve. But people should still be aware there is risk.

‘They could either take out another policy to top up the shortfall or switch to a repayment mortgage.’

Some 300,000 people are estimated to be entitled to compensation from the mis-selling scandal, according to the Financial Ombudsman Service, which is receiving 400 complaints a week and expects up to 30,000.

It generally sees about one complaint in ten after policyholders fail to get satisfaction from the company which sold them the mortgage.

On average, it is finding in favour of the policyholder in about half of the complaints it investigates.

The FSA says the compensation awarded is on average £3,331.

The largest group of successful complaints are by people who were not properly briefed about the risks of investing in a policy which is linked to the stock market.

Read more: http://www.dailymail.co.uk/news/article-50996/135-000-families-face-endowment-shortfall.html#ixzz2l0wvCYVS

The FSCS Got It Wrong!

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When a successful financial claim is filed against a firm but the firm is unable or likely to be unable to compensate the customer, The Financial Services Compensation Scheme (FSCS) can step in and pay the customer on their behalf. This is a free service to consumers and since 2001, the FSCS have paid out in excess of £26 billion in compensation claims and helped more than 4.5 million people.

However, the FSCS has recently lost its High Court appeal against a landmark verdict that found that it had offered inadequate compensation to a victim of bad mortgage advice. This case could revolutionise the way in which the FSCS assess compensation claims for victims of Mis-Sold Mortgages and other areas of poor financial advice.

The original case was brought to the attention of the FSCS in 2009, by Charmaine Emptage and related to advice given to her by a mortgage broker from Berkeley Independent Advisors firm, Mr Peter Sharratt.

Mr Sharratt’s poor advice to Ms Emptage saw her exchange a £39,633 repayment mortgage on her existing home for an interest-only mortgage for more than £111,000. The additional monies (more than £70,000) raised on the remortgage were, with Mr Sharratt’s advice, invested in a Spanish property. As we know the Spanish housing market then crashed leading to Ms Emptage suffering great financial loss.

In 2010, the FSCS concluded their investigation in to the claim and decided that whilst Mr Sharratt’s advice had not been to the required standard, Ms Emptage could only claim losses relating to the UK mortgage and they awarded her £11,500 in compensation. FSCS decided that the house purchase in Spain related to poor investment advice which was not within their jurisdiction to investigate, therefore the losses sustained in Spain could not be compensated. Ms Emptage’s lawyers challenged that FSCS decision on the grounds that the claim was not based on unregulated investment advice but rather, poor mortgage advice which FSCS had already determined had been incorrect. On that basis they argued that FSCS should compensate for all financial losses that flowed from that negligent mortgage advice.

Court proceedings were commenced on Ms Emptage’s behalf and in November 2012, FSCS found themselves in front of High Court judge, His Honour Charles Haddon-Cave. His judgement was made in favour the borrower and awarded a massive £150,000 damages to Ms Emptage £150,000 as well as an order requiring FSCS to pay all of her legal costs.

FSCS appealed against this ruling and the case was recently heard at the Court of Appeal in front of His Honour Judge Martin Moore-Bick. The FSCS reiterated its view that it could only deal with losses flowing from the mortgage advice and as the majority of Ms Emptages’s losses related to the collapse of her property investment in Spain it was not linked to the broker’s mortgage advice.

Judge Martin Moore-Bick felt this was not the case, and the FSCS had failed to correctly identify what advice had given rise to Ms Emptage’s claim. In the judges’s view the two aspects of poor advice (i.e. the mortgage advice and the investment advice) were heavily connected; ‘The loss suffered by Ms Emptage flowed from Mr Sharratt’s bad advice in relation to mortgaging her home, which was a regulated activity. FSCS had power under the Act and the rules made under it to pay fair compensation in respect of that loss. I think the judge was right in finding that it was at this point that FSCS went wrong.’

The full ruling quote of Judge Martin Moore-Bick in support of a Mis-Sold Mortgage verdict can be found HERE

The FSA publishes final guide on Mis-Selling Mortgages

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In January the Financial Services Authority (FSA) published its final guidance on mis-selling mortgages based on its findings in 2012.

This is thought to be an attempt by the regulator to crack down on the mis-selling of products to the public which affect many people throughout the UK.

The FSA has reviewed the activity of twenty two authorised financial firms in recent years, the authority discovered that a worrying 20 of the 22 firms had been involved in schemes that increased the risk of mis-selling products to the public.

A couple of these cases indicated serious risks, though surprisingly only one firm of the twenty two was referred to the authority’s enforcement and financial crime division.

The risk element refers to specific incentive schemes, these schemes are thought to go against what the FSA has been trying to crack down upon in recent years. The FSA was created with customer satisfaction in mind and several products sold to the public have been suggested to be unsuitable.

Incentive schemes are thought to be a major problem, with financial firms’ staff being awarded for every potential sale in the retail division. The sales teams and financial advisers in several banks have essentially been encouraged by financial services to misinform customers in order to sell them unsuitable products.

The FSA has made it clear that it will monitor how firms act as far as guidance is concerned and it has the authority to take action against those who deliberately misinform customers.

Unless financial firms take the initiative and respond to the guidance set out by the FSA they risk facing punishment by the regulator.

This guidance does not indicate specifically how staff should directly deal with customers transactions but it does suggest that incentive schemes deployed by financial firms have the potential to mis-inform and mis-sell products to customers.

Financial firms encourage financial rewards for marginal sales and performance based salaries for its staff, which is thought to be a major part of the problem.

Judging by the information published in the review it is supposed that there are many candidates within financial services and banks that could be targeted by the FSA in the future.

In an environment where employees are desperate to sell, the likelihood of mis-selling mortgages becomes increasingly likely, some staff working in the retail division of a financial service are paid entirely on the sales they make, rather than a base salary.

Endowment policies set to create more payouts

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Endowments policies were often sold by financial advisers to homeowners and homebuyers who were promised a return on their investment in the next twenty five years. Over these years the homeowners would be able to repay their mortgages and earn a sufficient amount in the process.

Homeowners usually paid around fifty pounds a month throughout the 80s and 90s and were promised a significant payout in the years to come, given the unpredictability of the financial market the supposed payouts are significantly lower than the initial projections.

Those who paid £50 per month were promised around £100,000 but long-term savings and investment company Standard Life predict that the amount is likely to be a measly £25,000 for this kind of investment.

Insurers place the blame on shares, bonds and inflation as interests rates have lowered over the years, insurers still insist that these savers had faired better than they would have investing their money in a building society. Experts suggest that this idea is simply untrue.

Many have been left wondering where exactly their investment has gone, the simple answer is that the sellers of these endowments usually pocket a high amount of the investment (around 120% in the first year).

If a home buyer took out a policy of £50 a month the salesperson could earn over £700, savers were often charged a monthly policy fee too that escalated with the rising inflation, these fees were pocketed by stockbrokers and investment banks.
Were the policies mis-sold?

In the early 2000s endowment companies were forced to pay out overall sums of around £2.5 billion in compensation after receiving such a high number of complaints from the public, indicating that they had been mis-sold these policies and mis-informed about the returns.

Many are now questioning the nature of these so called endowment policies and wondering whether they are entitled to compensation.

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